A prospective client drops a stack of IRS notices on your desk, blurts that they "might have under-reported some crypto," and asks if you can fix it by Friday. Before you take a dollar, Circular 230 forces you through five gates: issue identification, criminal-risk screening, competence and capacity, conflict screening, and transcript pull through e-Services.
Case-building starts with structured intake. Five items drive everything that follows:
- The notice. Number (CP2000, Letter 525, Letter 1058, Letter 11), date, response deadline, proposed liability
- Tax years open. IRC §6501 statute: 3 years general, 6 years for >25% omission, unlimited for fraud or non-filing
- Prior position. Original return, amendments, prior IRS correspondence
- Source documents. W-2, 1099, K-1, brokerage, bank, mileage, basis records
- Collateral facts. Marital changes, dependents, foreign accounts, virtual currency, business ownership
KEY: Reconcile what the taxpayer tells you against IRS transcripts. Discrepancies between client narrative and transcript data surface missing 1099s, prior assessments, and unfiled returns faster than any other method.
Map each disputed item to (a) the controlling IRC section, (b) the substantiation rule (§6001 records, §274(d) travel/meals, §170(f) charitable), and (c) any required reporting form (Schedule B Part III...
Common mistakes
- Treating IRC §7525 as criminal protection. §7525 covers civil tax matters only. Once criminal exposure appears, only attorney-client / Kovel privilege protects communications. Trap answer: "EA communications are privileged in criminal investigations."
- Ignoring capacity in the competence analysis. §10.35 competence includes time. Knowing the area is necessary but not sufficient when the deadline cannot be met. Trap answer: "I know the topic, so I can take the case."
- Oral conflict consent. §10.29 requires written informed consent from each affected client, retained 36 months. Trap answer: "Both spouses agreed verbally."
Bottom line
- Five preliminary gates: issue ID, criminal screen, competence/time, conflict check, transcripts
- Criminal indicators (badges of fraud) trigger Kovel referral; IRC §7525 privilege covers civil matters only, NOT criminal
- A Kovel letter extends attorney-client privilege to the EA only when the attorney (not the taxpayer) engages the EA
- §10.35 competence includes knowledge, skill, thoroughness, preparation, and time to do the work
Exam shortcut
Criminal smell, stop and refer. Any badge of fraud (multi-year omissions, concealment, destroyed records, false documents) ends the civil engagement. Route through a Kovel attorney. Never assume §7525 covers you. Conflict cure has three legs, all required. Reasonable belief + not legally barred + written informed consent. Miss one and representation is prohibited. Retain consents 36 months. Pull Wage and Income first.
The full lesson (about 2,097 words, 14 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- 2
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